South Korea Financial Regulator Proposes Consumer Protection Rules for Crypto Users

• South Korea has proposed new rules to protect the customers of virtual asset services providers.

• The country has been ramping up regulation of the industry in recent months.

• The rules do not cover non-fungible tokens (NFTs).

South Korea’s Financial Services Commission (FSC) has proposed rules to protect the customers of virtual asset services providers (VASPs), the regulator said on Monday.

The rules, which come under the Virtual Asset User Protection Act passed earlier this year, are scheduled to take effect on July 19, 2024. They are open for public comment until Jan. 22.

The Act defines digital assets and provides statutory grounds for sanctions, including criminal penalties and fines “to punish unfair trading activities using virtual assets.” It also requires VASPs, or exchanges, to monitor abnormal transactions and alert the FSC when appropriate.

South Korea has been ramping up its efforts to regulate the crypto sector in recent months. In July, the FSC announced draft rules that will require companies to disclose if they own or hold crypto starting next year.

Under the incoming rules, VASPs must pay fees to customers for using their deposits. When exchanges store their assets in banks, the banks are allowed to invest the deposits in safe assets like government bonds.

The rules also require exchanges to store 80% or more of customers’ deposits in cold wallets. A cold wallet is a crypto wallet that is not permanently online and is less vulnerable to cyberattacks.